What’s Next For Netflix Stock After Its 11% Rally?

by Trefis Team
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Netflix stock (NASDAQ: NFLX) has increased more than 11% in just the last one month and currently trades at $548 per share. The rally was driven by investors’ positive response to reports of Netflix planning to offer video games. Netflix has hired former Electronic Arts and Facebook executive Mike Verdu to oversee the rollout. Verdu had previously worked as a VP at Facebook who worked with developers to launch video games on Oculus virtual reality headsets. As per reports, Netflix plans to offer video games through its streaming platform within the next year. Additionally, Netflix might not charge extra for the gaming content, which could help the streaming giant expand its subscriber base more aggressively. But will Netflix’s stock continue its upward trajectory over the coming weeks, or is a correction in the stock more likely?

According to the Trefis Machine Learning Engine, which identifies trends in a company’s historical stock price data, returns for Netflix stock average about 3.4% in the next one-month (21 trading days) period after experiencing more than an 11% rise over the previous one-month (21 trading days) period. The stock has a 59% probability of giving a positive return in the next month. But how would these numbers change if you are interested in holding Netflix stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test Netflix stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

IF Netflix stock moved by -5% over 5 trading days, THEN over the next 21 trading days, Netflix stock moves an average of almost 2.5 percent, with a more than 56% probability of a positive return.

Some Fun Scenarios, FAQs & Making Sense of Netflix Stock Movements:

Question 1: Is the average return for Netflix stock higher after a drop?

Answer:

Consider two situations,

Case 1: Netflix stock drops by -5% or more in a week

Case 2: Netflix stock rises by 5% or more in a week

Is the average return for Netflix stock higher over the subsequent month after Case 1 or Case 2?

NFLX stock fares better after Case 2, with an average return of 2.5% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 3.3% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Netflix stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Netflix stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For NFLX stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although NFLX stock appears to be an exception to this general observation.

NFLX’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Netflix stock by changing the inputs in the charts above.

Want upside from growing digitization post Covid-19, but don’t want to pay a big premium for tech stocks? Check out our theme on Value Tech Stocks

 

See all Trefis Price Estimates and Download Trefis Data here

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